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IP: Implications of GAO Report on patent infringement litigation

The America Invents Act of 2012 (AIA) that reformed U.S. patent law also directed the Government Accountability Office (GAO) to compile a report on factors affecting patent litigation. Specifically, the GAO was to examine what some felt were problems created by the growth in software patent infringement suits brought by non-practicing entities, otherwise known as “patent trolls.” These matters are often seen as nuisance suits, brought against companies and others in an attempt to force a settlement and licensing agreement so as to avoid costly litigation.

The GAO issued its report in August and concluded that patent quality, not patent trolls, may be more to blame for nuisance infringement suits. Its analysis showed that companies that make products brought most of the patent infringement lawsuits and that non-practicing entities brought only about 20 percent of all lawsuits. The GAO report also concluded that rather than focusing on the identity of the litigants, emphasis should be placed on improving the quality of issued patents and the examination process in order to strengthen the U.S. patent system.

In some respects, the United States Patent Office (USPTO) is already addressing the issues raised by the GAO report as it carries out aspects of the AIA. Specifically, the USPTO has implemented the new AIA post-grant proceedings that allow for a third party to challenge the validity of an issued U.S. patent before the USPTO. The new proceedings are post-grant review, inter partes review and covered business method patent review. All three provide a more cost-effective and speedier process than civil litigation and former USPTO inter partes reexamination procedures.

The post-grant review procedures are also finding favor with the courts. In Fresenius USA, Inc. v. Baxter International, Inc.,the Federal Circuit recently found that if a USPTO post-grant proceeding invalidates a patent, the patent owner “no longer has a viable cause of action . . . . Therefore, the pending action is moot.” Of particular interest in this case is that the USPTO post-grant proceeding decision was found to be binding while the infringement case was on remand from the appeal at the Federal Circuit. Prior to this ruling, prevailing wisdom was that a post-grant proceeding needed to be completed prior to the district court judgment. The decision recognizes the curative role of the USPTO post-grant review and the importance of the USPTO acting to correct its own error in issuing the patent in the first place before undue mischief occurs in the court system. Overall, the decision raises the strategic value of these post-grant proceedings.

The AIA post-grant proceedings are somewhat of a sea change in patent litigation strategy. These speedier and less costly processes will likely take priority when patent challengers consider their options. The new post-grant proceedings also have different evidentiary and other standards than district court trial proceedings that will have benefits and drawbacks for both sides. This is also very much a business decision that must be made by both the legal and management teams at a company.

Future posts will discuss, more fully, the strategic implications of post-grant proceedings on patent litigation, as well as the new AIA post-grant procedures, for both patent owners and challengers.

Disclaimer: This is for general information and is not intended to be and should not be taken as legal advice for any particular matter. It is not intended to and does not create any attorney-client relationship.